A Florida court recently applied New York law and held that a purchase & sale agreement of a pharmacy’s future receivables could not be voided as a usurious loan even though the pharmacy’s principals signed personal guarantees securing the agreement. See EBF Partners, LLC v Burklow Pharmacy, Inc., 2018 WL 6620582 (Fla.Cir.Ct. 2018). In the case, plaintiff paid the defendant pharmacy $425,000 to purchase $586,500 of future receivables. In connection with the agreement, the pharmacy’s principals signed personal guarantees. After the pharmacy defaulted under the agreement, plaintiff brought this action seeking to collect the full amount due from the pharmacy and the individual guarantors. Defendants argued that the agreement was actually a usurious loan transaction and that it could not be enforced. Plaintiff moved for summary judgment.
The Court, applying New York law, granted the motion. Although the pharmacy’s principals were required to execute guarantees, the Court found that this fact alone did not make the agreement a loan. Under the agreement, the pharmacy had the right to request that plaintiff reconcile its debits with the pharmacy’s actual receipts so that the debits from the pharmacy did not exceed 15% of its receipts. More importantly, neither the agreement nor the guarantees required repayment under all circumstances. If the pharmacy went bankrupt or simply ceased operations without a default under the agreement, defendants would not owe anything to plaintiff. The guarantees only applied if the pharmacy defaulted under the agreement, such as if it transferred or sold its assets. Accordingly, the agreement was not a usurious loan and, because the pharmacy had sold its assets, the pharmacy and guarantors were liable for the full amount of the contract.